Overstreet v. Norden Laboratories, Inc., 79-3556
| Decision Date | 03 February 1982 |
| Docket Number | No. 79-3556,79-3556 |
| Parties | 33 UCC Rep.Serv. 174 Dr. Luel P. OVERSTREET, Plaintiff-Appellee, v. NORDEN LABORATORIES, INC., Defendant-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
John L. Dorsey, Jr., Dorsey, Sullivan, King & Gray, Henderson, Ky., for defendant-appellant.
Rudy C. Bryant, Henderson, Ky., for plaintiff-appellee.
Before ENGEL, KEITH and KENNEDY, Circuit Judges.
This is a direct appeal of a judgment involving a breach of expressed and implied warranty under Ky.Rev.Stat. §§ 355.2-313, 2-314, brought pursuant to the district court's diversity jurisdiction 28 U.S.C. § 1332.
Defendant-appellant Norden Laboratories, Inc. ("Norden") appeals from a judgment of $40,500.00, awarded in favor of plaintiff-appellee Dr. Luel P. Overstreet, a Kentucky veterinarian and horse owner.
On appeal Norden alleges that the failure to instruct the jury on the requirement that the plaintiff must have relied on the express warranty was error. We agree. Reliance is an element of a cause of action for express warranty under Ky.Rev.Stat. § 355.2-313(1)(a). We therefore vacate the judgment entered below and remand for proceedings consistent with this opinion.
Dr. Overstreet is a practicing veterinarian and operator of a standard bred horse farm in Henderson County, Kentucky. Equine rhinopneumonitis is a virus which causes horses to exhibit symptoms which generally resemble a common cold. In pregnant mares, however, the virus will cause abortions. Norden Laboratories, Inc., a Nebraska corporation, manufactures and markets various drugs to veterinarians. Rhinomune, one of the drugs manufactured by Norden, is a vaccine designed to inoculate horses against equine rhinopneumonitis.
Rhinomune was first marketed by Norden in the spring of 1973. Norden's marketing program for the new, unique drug utilized magazine advertisements, brochures and sales persons. In the spring of 1973, about the time Norden began marketing Rhinomune, two mares on Dr. Overstreet's farm aborted their foals. Dr. Overstreet became concerned about a possible outbreak of equine rhinopneumonitis virus among his breeding horses. It was later determined that an equine rhinopneumonitis virus caused the abortions.
A Norden sales representative called on Dr. Overstreet's office and spoke with an associate of the doctor's concerning rhinomune. Dr. Overstreet became interested in the drug and allegedly read rhinomune promotional literature. Dr. Overstreet asserts that he then ordered a quantity of rhinomune, because of the representations contained in Norden's advertisements.
The rhinomune vaccine was administered to a number of Dr. Overstreet's horses during the three months prior to November, 1973. Six of the inoculated mares on Dr. Overstreet's farm aborted their foals during the spring of 1974. 1
Dr. Overstreet instituted this breach of warranty action under Ky.Rev.Stat. §§ 355.2-313, 2-314 against Norden to recover losses resulting from the aborted foals. At trial, Dr. Overstreet alleged that Norden breached expressed and implied warranties which Norden made concerning its rhinomune vaccine. A jury returned a Norden made motions for judgment n.o.v. and, in the alternative, for a new trial. Both motions were denied. Defendant Norden perfected this appeal. Norden assigns as error jury instructions on the issue of its liability under Ky.Rev.Stat. §§ 355.2-313, 2-314. Norden argues that the trial court should have instructed the jury that in order to recover, plaintiff must establish that he relied on any warranty which Norden made. Appellant's challenge is well founded, but imprecise. As Norden contends, reliance is an element of a breach of an expressed warranty action under Kentucky law, and the jury should have been instructed accordingly. However, the implied warranty of merchantability Ky.Rev.Stat. § 355.2-314 is a duty imposed by Kentucky law and plaintiff's reliance thereon is not a requisite to defendant's liability for breach.
verdict of $40,500.00 in favor of Dr. Overstreet.
The verdict form allowed the jury to award a judgment against Norden without stating which warranty was breached, consequently we cannot determine under which theory appellant's liability was imposed. We find these jury instructions were erroneous. Because the instructions were erroneous and, for the reasons set forth below, we reverse the trial court's judgment and remand for proceedings consistent with this opinion.
The implied warranty of merchantability as set forth in the Ky.Rev.Stat. § 355.2-314 provides in pertinent part:
"(1) Unless excluded or modified (KRS 355.2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind...."
To be merchantable, goods must, inter alia, "be fit for the ordinary purposes for which such goods are used." Ky.Rev.Stat. § 355.2-314(2)(c).
The implied warranty of merchantability arises by operation of law. As such, it does not require reliance as an element of a purchaser's recovery. Consequently, Norden's reliance argument, so far as it relates to the implied warranty of merchantability, is without merit. We find that Judge Gordon properly instructed the jury on the implied warranty theory. However, we hold that there is insufficient evidence on this record to sustain a finding that Norden breached its implied warrant of merchantability.
Appellant contends that the jury instructions and verdict form 2 were improper, because neither required a finding of reliance as an element of recovery under the express warranty. We agree.
We appreciate the formidable task which confronts a trial judge in charging a jury. We must nevertheless remain loyal to the mandate of Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), which requires a federal court sitting in diversity to apply the substantive law of the state in which it sits. In the instant case, however, no Kentucky court has construed Ky.Rev.Stat. § 355.2-313. 3 Appellant noted above that the jury instructions did not include a charge that Dr. Overstreet must have relied on the express warranty. Moreover, the record before us does not reflect that the trial court properly ascertained whether reliance was an element of appellee's recovery. Accordingly, we hold that these instructions were erroneous. We must now decide, as we think a Kentucky court would decide, the elements of an express warranty action.
Thus, it is the duty of the federal court to decide such unsettled issues of state law 4 as a Kentucky state court would. See Erie v. Tompkins, supra; Hardy v. Johns-Manville Sales Corp., 509 F.Supp. 1353, 1357 (E.D.Tex.1981); Delduca v. U.S. Fidelity and Guaranty Co., 357 F.2d 204, (5th Cir. 1966). "(A) federal court without benefit of guidance from the forum state's highest court or its state legislature should analyze the indications and determine the path that state would follow." Id. at 207.
Substantial compliance with the directions for the use of a product is a condition precedent to the existence of an express warranty. See, e.g., Elanco Products Co. v. Akin-Tunnell, 516 S.W.2d 726, 15 UCC Rep. 777, 783-84 (Tex.App.1974); Chatfield v. Sherwin-Williams Co., 266 N.W.2d 171, 24 UCC Rep. 285, 292 (Minn.1978). The scope of a product warranty is limited to the product's intended use. Use of a product contrary to its directions will preclude recovery for breach of an express warranty. See Elanco Products Co., supra, 15 UCC Rep. at 784.
An express warranty may be created by any affirmation of fact or promise made by a seller which relates to the goods. Ky.Rev.Stat.Ann. § 355.2-313(1)(a) (Baldwin). The language creating an express warranty need not contain special phrases or formal words such as guarantee or warranty. Ky.Rev.Stat. § 355.2-313(2). See Note, The Uniform Commercial Code and Greater Consumer Protection Under Warranty Law, 49 Ky.L.J. 240, 243 (1960) (hereinafter cited as Consumer Protection Under Warranty Law). In fact, a seller need not have intended that the language create an express warranty. Ky.Rev.Stat.Ann. § 355.2-313(2) (Baldwin). Every statement made by a seller, however, does not create an express warranty. A seller may puff his wares and state his opinion on their value without creating an express warranty. Ky.Rev.Stat.Ann. § 355.2-313(2) (Baldwin). See, e.g., Royal Business Machines v. Lorraine Corp., 633 F.2d 34, 30 UCC Rep. 462, 468 (7th Cir. 1980).
The existence of an express warranty depends upon the particular circumstances in which the language is used and read. See, e.g., Interco, Inc. v. Randustrial Corp., 533 S.W.2d 257, 19 UCC Rep. 464, 470 (Mo.App.1976); Sessa v. Riegle, 427 F.Supp. 760, 21 UCC Rep. 745, 752 (E.D.Pa.1977), aff'd without op., 568 F.2d 770 (3rd Cir. 1978). A catalog description or advertisement may create an express warranty in appropriate circumstances. See Interco, Inc., supra, 19 UCC Rep. at 470; McKnelly v. Sperry Corp., 642 F.2d 1101, 30 UCC Rep. 1533, 1540 n.10 (8th Cir. 1981). The trier of fact must determine whether the circumstances necessary to create an express warranty are present in a given case. See Sessa, supra, 21 UCC Rep. at 751-52; Janssen v. Hook, 1 Ill.App.3d 318, 272 N.E.2d 385, 388 (App.Ct.1971). The test is "whether The mere existence of a warranty is insufficient to sustain an action for breach of an express warranty. The warranty must be "part of the basis of the bargain" between the parties. Ky.Rev.Stat.Ann. § 355.2-313(1)(a) (Baldwin). A warranty is the basis of the bargain if it has been relied upon as one of the inducements for purchasing the product. See Ky.Rev.Stat.Ann. § 355.2-313(1) (a), Comment 1(C) (Baldwin); 5 Consumer Protection Under Warranty Law, supra, at 243; Van Deren Hardware Co. v. Preston, 224...
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